The Global Macroeconomics of a Trade War: The EAGLE model on the US-China trade conflict

Sweder van Wijnbergen, Wilko Bolt and Kostas(Konstantinos) Mavromatis

No 13495, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We study the global macroeconomic effects of tariffs using a multiregional, general equilibrium model, EAGLE, that we extend by introducing US tariffs against Chinese imports into the US, and subsequently Chinese tariffs against US imports into China, consistent with recent trade policies by the US and the Chinese governments. We abstract from tariffs on goods exported from the euro area, focusing on a US-China trade war. A unilateral tariff from the US against China dampens US exports in line with the Lerner Symmetry theorem but global output contracts. Global output contracts even further after China retaliates. The euro area benefits from this trade war. These European trade diversion benefits are caused by cheaper imports from China and improved competitiveness in the US. As price stickiness in the export sector in each region increases, the negative effects of tariffs in the US and China are mitigated, but the positive effects in the euro area are then also dampened.

Keywords: Trade policy; Exchange rates; Trade diversion; Local currency pricing (search for similar items in EconPapers)
JEL-codes: E32 F30 H22 (search for similar items in EconPapers)
Date: 2019-01
New Economics Papers: this item is included in nep-int and nep-mac
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Citations: View citations in EconPapers (34)

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